Summary.We explore whether modelling parameter time variation improves the point, interval and density forecasts of nine major exchange rates vis-à-vis the US dollar over the period 1976-2015. We find that modelling parameter time variation is needed for an accurate calibration of forecast confidence intervals and is better suited at long horizons and in high volatility periods. The biggest forecast improvements are obtained by modelling time variation in the volatilities of the innovations, rather than in the slope parameters. We do not find evidence that parameter time variation helps to unravel exchange rate predictability by macroeconomic fundamentals. However, an economic evaluation of the various forecast models reveals that controlling for parameter time variation and macroeconomic fundamentals leads to higher portfolios returns, and to higher utility values for investors.

Reproduction permitted only if source is stated.ISBN 978-3-95729-309-1 (Printversion) Non-technical summary Research questionsWhat are the effects of financial shocks on inflation? Can financial shocks explain the "missing disinflation puzzle" during and after the Global Financial Crisis (GFC). Through which channels do financial shocks affect inflation? What are the policy implications? ContributionThe paper which analyses the US economy makes two main contributions. First, we suggest an identification scheme for financial shocks which leaves the inflation response unrestricted. Existing time series work focuses on the effects of financial shocks on real economic activity and restricts the inflation and/or the policy interest rate response a priori. Second, the paper explores various transmission channels of financial shocks and their implications for inflation. Previous product-or firm-level data based work has been able to identify the existence of individual transmission channels, but not to derive implications for the behavior of aggregate inflation after financial shocks. Results and policy implicationsThe first key result is that financial shocks that increase economic activity and credit growth and lower funding costs lead to a temporary reduction in inflation. Based on a historical decomposition we show that financial shocks contributed to the pre-crisis credit boom, characterized by low risk premia and high credit growth, and the subsequent bust. Moreover, negative financial shocks contributed positively to inflation during the GFC, thereby compensating deflationary pressures from other developments. We then explore the transmission channels that can account for the response of inflation after financial shocks. We find that expansionary financial shocks lower borrowing costs. If the latter are an important component of firms' marginal costs, then the drop in borrowing costs leads to a decline in overall marginal costs that can account for the negative inflation response.Our results have two policy implications. First, financial shocks which raise output and lower inflation may worsen the trade-off faced by a central bank which seeks to stabilize both output and inflation. Second, a monetary policy designed to strengthen credit supply may have unintended disinflationary effects (e.g. through the cost channel). Clearly, this would not be desirable in an already low inflation environment. Nichttechnische Zusammenfassung AbstractWe assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the "missing disinflation" during the Great Recession. We apply a vector autoregressive model to US data and identify financial shocks through sign restrictions. Our main finding is that expansionary financial shocks temporarily lower inflation. This result withstands a large battery of robustness checks. Moreover, negative financial shocks helped preventing a deflation during the latest financial crisis. We then explore the transmission channels of financial shocks relevan...

This paper studies how the structure of the International Trade Network (ITN) changes in geographical space and along time. We employ geographical distance between countries in the world to filter the links in the ITN, building a sequence of sub-networks, each one featuring trade links occurring at similar distance. We then test if the topological properties of ITN subnetworks change as distance increases. We find that distance strongly impacts, in non-linear ways, the topology of the ITN. We show that the ITN is disassortative at long distances while it is assortative at short ones. Similarly, the main determinant of the overall high ITN clustering level are triangular trade triples between geographically close countries. This means that trade partnership choices are differentiated over different distance ranges. Such evidence robustly arises over time and after one controls for the economic size and income of trading partners.

We study the changing international transmission of US financial shocks over the period . Financial shocks are defined as unexpected changes of a financial conditions index (FCI), recently developed by Hatzius et al. (2010), for the US. We use a time-varying factor-augmented VAR to model the FCI jointly with a large set of macroeconomic, financial and trade variables for nine major advanced countries. The main findings are as follows. First, positive US financial shocks have a considerable positive impact on growth in the nine countries, and vice versa for negative shocks. Second, the transmission to GDP growth in European countries has increased gradually since the 1980s, consistent with financial globalization. A more marked increase is detected in the early 1980s in the US itself, consistent with changes in the conduct of monetary policy. Third, the size of US financial shocks varies strongly over time, with the `global financial crisis shock' being very large by historical standards and explaining 30 percent of the variation in GDP growth on average over all countries in 2008-2009, compared to a little less than 10 percent over the period. Finally, large collapses in house prices, exports and TFP are the main drivers of the strong worldwide propagation of US financial shocks during the crisis. We address the following questions: We find that expansionary US financial shocks have a considerable positive impact on the nine countries, and vice versa for negative shocks (with Australia being less affected). The transmission to GDP growth in the European countries has increased gradually since the 1980s, consistent with globalization. We also detect a more marked increase in the effect on growth in the US in the early 1980s, consistent with changes in the conduct of monetary policy. The size of US financial shocks also varies strongly over time, with the `global financial crisis shock' being larger than any other financial shock estimated over the sample under analysis.US financial shocks explain on average over all countries 30 percent of the variation in GDP growth during the crisis period, which is very large compared to a little less than 10 percent on average over the 1971-2007 pre-crisis period.We finally find that the strong worldwide propagation of the global financial crisis was due to a sharp breakdown in exports. House prices and Total Factor Productivity have also declined very strongly by historical standards in response to the adverse financial shock in most countries, which may have also contributed to an exceptionally strong decline in consumption and investment. Nichttechnische Zusammenfassung

Research Question The recent financial crisis has marked the importance of understanding the different types of risk to which the financial sector, and ultimately the real economy, are exposed. In particular, monetary policy might influence financial sector risk through the so called risk-taking channel, i.e. the mechanism by which low levels of the risk-free interest rate induce financial institutions to make riskier investments. We explore the functioning and relevance of this channel using a quantitative macroeconomic model, and assess whether the monetary authority should take its influence on bank asset risk into account when setting the interest rate